Intel Lawsuit Questions Custom Target-Date Fund Construction

The lawsuit also hints that certain “best practices,” in part, resulted in many participants being improperly invested.

By Rebecca Moore | November 02, 2015
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A participant in retirement plans sponsored by Intel Corporation has filed a lawsuit claiming custom-built investment portfolios within the plan are too heavily invested in imprudent investments.

The gravamen of the complaint is that the asset-allocation models adopted by the retirement plans’ investment committee departed dramatically from prevailing standards employed by professional investment managers and plan fiduciaries, and as a result, caused participants to suffer massive losses and excessive fees. However, the lawsuit more subtly hints that what some would call “best practices” in defined contribution retirement plans caused a great number of participants to be invested in these alleged improper investments.                       

Plaintiff Christopher M. Sulyma, on behalf of two proposed classes of participants in the Intel 401(k) Savings Plan and the Intel Retirement Contribution Plan, claims that the defendants breached their fiduciary duties by investing a significant portion of the plans’ assets in risky and high-cost hedge fund and private equity investments. According to the complaint, beginning in 2011, the investment committee dramatically altered the asset-allocation model for the Intel custom target-date portfolios (TDPs) by increasing Intel TDP investments in hedge funds from about $50 million to $680 million, an increase of 1,300%. Similarly, the investment committee increased exposure to hedge funds and private equity investments during 2009 through 2014 in a custom-built Intel Global Diversified Fund. During this period the Diversified Fund’s investment in hedge funds increased from about $582 million to $1.665 billion, an increase of approximately 286%; the fund’s investment in private equity increased from about $83 million to $810 million, an increase of 968%.

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